Viewpoint: Maximizing India's FTA Potential

30 DEC,2021 | MEDC


  • As the second year of the pandemic draws to a close, it is worth reflecting on how India has fared regarding its Free Trade Agreements (FTAs). Despite the impact of the pandemic on the global economy, the revival of international trade continues unabated with world trade in goods attaining record levels in the third quarter of 2021 and trade growth continuing at about 1% each quarter. India must ensure that its FTAs are flexible enough to benefit from these developments. That will necessitate taking a fresh look at our existing protectionist tariff structure and our inability to integrate adequately with global value chains (GVCs).
  • Sustainable trade agreements are less about tariffs and more about regulatory policies, as once the latter change, it is easier to adjust the former. Internationally, deep trade agreements have been designed over the last two decades to facilitate complex global value chains, and the underlying trade-investment-services linkages. However, the importance of a competitive tariff structure cannot be underestimated.
  • Despite tariffs not being the most important part of the current FTA design, they are negotiated and included in all FTAs. This is where India stands relatively disadvantaged, as with comparatively lower tariffs most countries come to the FTA negotiation table with the vast majority of tariff line liberalization as a foregone conclusion. India’s hesitation to offer tariff concession of the same order, especially in the recent past, gives it a shaky foothold in such negotiations. Protectionism is not serving our global trade interests.
  • The leading international trade mechanism today are GVCs. They are currently centered on three major geographies – North America, Europe, and East Asia. In each case, FTAs have been a major contributory factor in facilitating deeper integration with the regional value chains. From India’s perspective, the East Asian value chain is probably the most important, given the rising global economic influence of that area. Despite all differences with China, India needs to acknowledge regional realities and respond accordingly in its trade policies.
  • The world’s biggest trading bloc today is the Regional Comprehensive Economic Partnership (RCEP), which has been ratified by more than a dozen Asian nations at different stages of economic development. Our policymakers probably believed that by not joining the RCEP and building a self-reliant India (Atmanirbhar Bharat), the country would be in a position to design future FTAs from a position of strength. That may be a mistake. As China’s accession to the World Trade Organization showed, joining an existing arrangement requires paying a higher price in terms of trade concessions.
  • India’s future in the post-Covid world appears bright. Despite the socioeconomic devastation caused by the virus, India’s strategic response has been appreciated globally. We need to have the same policy agility in our approach to trade. In this context, it may be worth reconsidering our decision to join the RCEP. It might also be helpful to view the RCEP not as a China-led trade coalition, but as a policy platform that India could gainfully utilize to realize its FTA ambitions. Much of India’s potential economic growth hinges on its international trade policies. Hence, a pragmatic approach herein is essential.

*Photo Credit: Google


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